Sears Shedding Stores as it Sinks

by Jeff Reeves | December 27, 2011 10:40 am

Sears Shedding Stores as it Sinks

While many retailers remain on pins and needles about how their holiday receipts will stack up, there’s no mystery at Sears Holdings (NASDAQ:SHLD). The company that operates Sears and Kmart department stores has been losing customers and bleeding red ink forever — and the past few months were no exception.

So Sears wasted no time announcing a huge cutback on its store count. Between 100 and 120 Sears and Kmart stores will be closed. The company says $140 million to $170 million will be made as the inventory is shuffled out at fire-sale prices.

But more disturbing isn’t the store closures — it’s the context. Sears is losing money, and no profits are expected anytime soon. It makes you wonder if this really is just the beginning of the end for the once-iconic department store.

How bad is it? Well, consumers should know first-hand just by visiting their local Kmart or Sears locations. Fallen flagship brands like Craftsman tools and Kenmore appliances used to be quality names for many Americans but have little currency with shoppers today.

Even more damning is the tarnish on the stores themselves — aging stores ideally could use a fresh design and at the least need a good cleaning and repair job.

Hedge fund manager Edward Lampert and his cronies merged Sears with Kmart in 2005. Lampert began focusing on online boondoggles such as an online marketplace in the vein of eBay (NASDAQ:EBAY) rather than acknowledging the power of its legacy brands at physical stores. You can’t fault the logic, since online retail is crushing brick-and-mortar sales. But the result is online efforts have failed to bear fruit yet, and existing stores present customers with a rather disappointing experience.

The icing on the cake is that Wall Street estimates for the company project consecutive quarterly losses in each period through all of fiscal 2013. That means if you’re being charitable, Sears will continue to lose money for another year-and-a-half.

But let’s be honest — the reality is that forecasters aren’t looking past 2013 because that’s too far down the road. There’s a very good chance that a year from now, the outlook might be just as grim.

Sears has yet to determine which stores will be closed, or how many jobs will be lost. Management is casting the store closures as an unfortunate event prompted by a bad economy — and that is indeed partly true. Many big retailers like Wal-Mart (NYSE:WMT[1]) have struggled to find their way as consumers have cut back and are more savvy about getting the best deals. It might sound counterintuitive that the king of low-priced retail would be hurting, but Wal-Mart has suffered for a few years now as smaller discounters like Dollar General (NYSE:DG[2]) connect with customers and sometimes even undercut pricing at the big guys.

It is indeed challenging for retailers. But Sears is in a class of its own when it comes to losing customers and losing money in the retail space. And it’s worth noting that some retailers are booming.

Sales at the company have dropped every single year since Lampert took over in 2005. No wonder shares are off almost 50% year-to-date in 2011 and almost 70% from the 2010 peak of SHLD stock.

To be clear, bankruptcy might not be an immediate concern. Sears doesn’t have the crippling debt load that drives companies directly into bankruptcy. But it’s certainly on its way. Unless Sears can streamline its operations and find a good way to use funds from this inventory liquidation, it’s likely we will see only more store closures in the future and a race to the bottom for this once-storied retail brand.